[SMM Analysis] Polarization in Japan's Copper Scrap Market

I. Japan's Copper Scrap Market: A Fragmented Structure Concealed by a "Facade of Stability"

For a long time, Japan's secondary copper market has been regarded as a representative market characterized by "stability, standardization, and low volatility" within the global copper scrap trade system.

However, upon closer examination of the domestic market structure, Japan's copper scrap market is not a unified, homogeneous pricing system. Instead, it consists of two distinct operational logics that have long coexisted. This structural differentiation causes the Japanese market to exhibit vastly different liquidity and behavioral patterns across various price cycles, and to some extent, diminishes the reference value of single price signals.

II. The Coexistence of "Planning-Based" and "Price-Based" Operational Logics

The fragmentation of Japan's copper scrap market is not reflected in regulations or systems, but rather in fundamental differences in corporate operational logic and risk appetite. From the perspective of business management, the market can be broadly divided into two systems: one is the "planning-based system," represented by some local Japanese enterprises; the other is the "price-based system," predominantly led by Chinese enterprises in Japan. This classification is not based on nationality itself, but on differences in business objectives, inventory philosophy, and price participation methods.

Planning-Based System: Focused on Stable Fulfillment and Long-Term Order

The long-standing stable image of Japan's copper scrap market primarily stems from the existence of the planning-based system. This system largely consists of long-established local recycling enterprises, processing enterprises, and enterprises with deep ties to downstream smelting systems. Its operational logic is highly institutionalized and process-oriented.

Within this system, planning is the core characteristic. Enterprises typically set clear targets for recycling, processing, and inventory on a monthly or quarterly basis, for instance, maintaining a relatively fixed inventory scale over the long term, and arranging their shipment pace around this target. During periods of rapid price increases or decreases, planning-based enterprises often do not significantly alter their shipment behavior. Their core objective is not to capture price peaks, but to maintain production continuity, contract fulfillment capability, and cash flow stability.

Under this system, inventory is viewed more as a safety cushion for production and fulfillment, rather than a tool for actively speculating on prices. Its pricing logic also leans more towards long-term cooperative relationships and risk controllability.

Price-Based System: A Price Gaming Structure Primarily Comprising Chinese Trading Entities in Japan

Coexisting with the planning-based system is another operational structure driven primarily by price fluctuations, whose main participants are predominantly Chinese enterprises in Japan. According to market feedback, the proportion of Japanese copper scrap resources actually controlled by the Chinese system may exceed half.

This structure is not a short-term phenomenon. Including some large Japanese smelting groups (such as Sumitomo and JX Metals), which have attempted to extend upstream and directly participate in the copper scrap recycling system, have consistently struggled to compete effectively with the Chinese enterprise system in terms of actual operational efficiency, cost control, and resource recovery capabilities.

In a price-driven system, price is the core variable in operational decision-making. When copper prices are high or rising rapidly, some enterprises tend to accelerate the pace of destocking and release inventory intensively; whereas when prices pull back or enter a consolidation phase, they stockpile in anticipation of a future rebound. In some cases, spot operations may also coordinate with futures positions to hedge risks or amplify cyclical gains.

It should be noted that not all Chinese enterprises adopt highly aggressive "gambling-style" operations, but those capable of and willing to actively engage in cyclical price activities are almost exclusively found within this system.

III. Potential Impact of Structural Differentiation on the Market

The coexistence of two operational logics directly leads to differentiation in inventory management, shipment pace, and pricing behavior within the Japanese copper scrap market. For planned enterprises, inventory serves as a risk buffer, while for price-driven enterprises, inventory is a chip for profit gaming. This difference means that, at the same price level, the Japanese copper scrap market may reflect entirely different actual supply-demand conditions. At certain stages, surface quotations remain stable, but the price-driven system has already begun accelerating destocking; at other times, firm quotations stem from resources being locked up collectively rather than improvements in end-use demand.

IV. Conclusion: The Dual Structure Will Persist Long-Term

Overall, the polarization of the Japanese copper scrap market is not a short-term imbalance but a result of long-term industrial structure, resource organization methods, capital participation pathways, and cultural backgrounds. This structure is neither a simple "stability vs. speculation" dichotomy nor a zero-sum opposition, but rather a parallel system where different cycles alternately dominate market behavior. In the foreseeable future, this dual structure of the Japanese copper scrap market is expected to persist and continue influencing its price performance, liquidity characteristics, and foreign trade pace.